Collecting Installer Labor Bills Daily

After reading the title of this article, I bet many of you checked out my bio because obviously I don’t know anything about flooring to write about this topic?  Right?  What is the big deal in collecting labor bills daily if installers are paid once a week?  Who in their right mind would want to chase down subcontractors that are not the best with paperwork to begin with?  The easy answers are I have worked with over 1,300 flooring retailers over the last twelve years, was an operating partner of four flooring companies, and those of you who do not collect labor bills daily are putting more burden on your company than necessary.

What would be your thoughts on hearing that when you swipe your credit card at Walmart or Target that they wait up to seven days before they do their batch and send it off to their processing companies?  That their system is crazy?  They must have so much cash that receiving money is no big deal?  The truth is that many invoicing and collecting systems in a flooring company are very similar.  If you collect labor bills on Wednesday to process payroll for Friday you would have the same receivable issues as Target and Walmart.   Jobs that we completed last Thursday would not be job costed until next Wednesday because you will need the labor on the job to accurately apply cost.  That would mean that the receivable would not be recorded until seven days later and the collecting process would then begin.

I do realize that some of you have the installers collect checks, may have a credit card on file that you charge the same day or one day prior to installation for any balance due, and a handful collect 100% of jobs when sold.  All appear to be sound practices when you are 100% retail and your systems are followed and your installers don’t mind being bill collectors, but these methods certainly do not apply to commercial, new construction, multi-family, or insurance jobs.  And for those that are slow pay why drag out the process even more?

The concept of collecting labor bills daily is very straightforward.  The quicker your collect labor bills, the quicker you can job cost, and the quicker you can invoice customers or collect the receivable. And for those who feel this is more of a burden than a benefit, make sure you keep reading.  According to a substantiated survey conducted by Benchmarkinc in which several hundred flooring owners participated over a three-year period ending 2013 independent flooring stores that collect labor bills daily from their installers:

  • Have a sales volume over 60% greater than those who do not; $4,002,076 vs. $2,497,024
  • Receivable were 4.2 days less
  • Receivables over 90 days were nearly 24% less
  • Bank debt was 13.7% less
  • Cash was 33.4% greater
  • Owners took home $18,689 more per year

The great thing is there are even more benefits than listed in those bullets.  It will level out your monthly closings so you will get a more accurate picture of your financial performance.  The need to delay your monthly close to the end or the middle of the next month because you are waiting to apply labor to jobs so you can cost them and book them to the correct month will be reduced if not eliminated.  It could also ensure you can touch your customer more quickly with satisfaction surveys or follow up installation calls which could bring to the surface any issues with customers before they get out of hand and require a monetary accommodation or cause harm to goodwill. 

One other huge benefit to collecting labor bills daily is better control of job overages.  It much easier to manage the spread between the labor cost listed on each original work order and the individual labor bill turned in by the installer versus all of the jobs performed over a seven day period.  Now multiply this process by the number of installers and you can see that it can get very challenging for even the most adept labor costing employee.  Let’s be honest here, it is not that difficult for an installer to turn in a few labor bills a month with extra prep, that may or may not have been performed and was not approved prior to doing the extra work, if the person checking the accuracy against the original work order is overwhelmed with the sheer volume of labor bills turned in one day per week.   Now multiply this by the number of installers and the jobs they complete per week and you will see how this could be very costly. 

Getting installers to turn in labor bills daily may present a challenge for those that are used to scrambling to get the bills in once a week, but most people are able to adapt to change when the new system is well defined and the implementation is consistent.  The rule should be simple:  when they come to the warehouse to pick up materials for a job a labor bill is collected for the job that was completed the day before. Some exceptions may apply, such as an installer that is on a multiday job and doesn’t need to return to the warehouse to pick up materials each day; in that case the labor bills are collected according to the progress billing schedule or when the job is complete. 

A good friend of mine taught me that when attempting to do something that will initially create more work and could require a change in culture, “The juice must be worth the squeeze”.  According to the numbers obtained from the survey and the added benefits of customer service, financial controls, and labor margin protection the fruit that needs to be squeezed is SUPER juicy!!!